Chapter 7 -- Internal Control -- Purchases, Payroll, and Other Cycles Flashcards
Section 7.1: Purchases Responsibilities/Organizational Structure
What is considered a voucher package for purchases?
- Purchase Orders
- Receiving Reports
- Vendors Invoice
Section 7.1: Purchases Responsibilities/Organizational Structure
What are the objectives of internal control for a production cycle?
- To provide assurance that transactions are properly executed and recorded
- Safeguard assets by ensuring inventory is protected from misuse or theft.
Section 7.1: Purchases Responsibilities/Organizational Structure
What are the responsibilities of the CFO office in regard to purchases?
- Signing the supporting documentation as approval for disbursement
- Verifying the accuracy of checks and vouchers
- Signing the checks and mailing to the vendors
- Cancelling the payment vouchers when paid
Section 7.1: Purchases Responsibilities/Organizational Structure
What are the responsibilities for the vouchers payable department?
- Match the purchase order and receiving report with the vendor invoices.
- Test the calculations and terms on the vendor invoices
- Prepare the disbursement voucher and indicate the accounts that are affected.
Section 7.1: Purchases Responsibilities/Organizational Structure
What is considered the segragation of duties in purchasing?
Authorization: Purchasing Department
Recording: Accounts Payable Department
Custody: Receiving Department
Section 7.1: Purchases Responsibilities/Organizational Structure
What is the systems process for purchases and payables?
- Inventory Control: Authorizes a purchase requisition to the purchasing and accounts payable departments.
- Purchasing: Creates a purchase order based on the requisition with the approved vendor.
- Receiving: Receives a blind copy of the purchase Order
- Vendor: Receives the purchase order
- Vendor: Ships Goods
- Receiving: Receives the goods and compares the information on the packing slip with the purchase order
- Receiving: Creates a receiving report
- inventory Control: Updates inventory records based on receiving report.
- Accounts Payable: Receives receiving report and enters information in the A/P file for payment.
Section 7.1: Purchases Responsibilities/Organizational Structure
What is considered the segragation of duties in accounts payable?
Authorization: Completed Voucher Package
Recording: Invoice Verification
Custody of Assets: Cash Disbursement
Section 7.2: Purchases Technology Considerations
What is automatically recorded in a transaction log?
- When the transaction occurred
- The identification of the person who entered each transaction
Section 7.2: Purchases Technology Considerations
What are preformatted screens?
Preformatted screens are data screens that are used to make sure that data is entered correctly in a required data field.
Section 7.2: Purchases Technology Considerations
What is the advantage of using EFT for international payments?
- Reduction of frequency of human error
- Allows for the rapid detection and correctness of error when they occur
Section 7.2: Purchases Technology Considerations
What is recorded in a payables-purchase transaction log?
- When the transaction occurred
- The identification of the person that entered each transaction
Section 7.2: Purchases Technology Considerations
What is a closed-loop verification?
- An input control that permits visual verification of the data accuracy that was entered.
- Example would be entering quanities in a computer terminal and it shows on the screen the number entered
Section 7.2: Purchases Technology Considerations
What information is recorded in the inventory master file?
- Name of approved vendor
- Economic order quantity
- Terms
- Costs
- Any other relevant information.
Section 7.3: Electronic Data Interchange (EDI)
What are the essential elements in an audit trail of EDI?
- Network
- Sender-Recipient acknowledgments
Section 7.3: Electronic Data Interchange (EDI)
What should be included in an EDI agreement?
- The responsibilities of all parties involved
- The messages that will be initiated
- How the messages will be interpreted
- Means of authenticating and verifying the completeness and accuracy of the messages
- The effective date of the contract
- The required level of security
Section 7.3: Electronic Data Interchange (EDI)
What should an auditor review in an EDI application?
- Determine whether an independent review of the service provider’s operation was conducted
- Verify that the service provider’s contracts include necessary clauses, such as the right to audit
Section 7.3: Electronic Data Interchange (EDI)
In EDI, why are preventive controls more important than detective controls?
- The benefits of preventive controls outweigh the costs
- The opportunity to apply detective controls is limited once a transaction has been processed
- Preventitive controls prevents fraud or error
Section 7.4: Payroll Responsibilities/Organizational Structure
What is the segration of duties in regarding to processing payroll?
Authorization of hiring and wage rate: Personnel/Human Resources
Authorization of hours worked: Department/Product Manager
Recording: Payroll Department
Custody: CFO
Section 7.4: Payroll Responsibilities/Organizational Structure
What internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?
- Time tickets should specifically identify labor hours as direct or indirect
- Compare daily journal entries with the factor labor summary
Section 7.5: Payroll Technology Considerations
What is a data dictionary?
- A data dictionary is a file which the records relate to specified data items.
- It contains definitions of data records, files and the list of programs used to access and process the data.
- Permission is required to retrieve data or modify data items
Section 7.5: Payroll Technology Considerations
In a test of controls pertaining to the occurrence of payroll transactions, what would be used as a sampling unit?
- The payroll register file because it contains each payroll transaction for each employee.
- An entry in the payroll register is reconciled to time cards to test if the recorded transaction actually occurred.
Section 7.5: Payroll Technology Considerations
What type of activity can be used to detect whether the payroll data was altered during processing?
- The test data approach to test for the effectiveness of the controls over the payroll data
- The computer is used to test the processing logic and controls within the system and the records produced.
Section 7.6: Other Cycles
In regard to investments and securities, what internal control activity would satisfy the completeness assertion?
The internal auditor compares the securities in the bank safe deposit box with recorded investments.
Section 7.6: Other Cycles
What would be one of the tests of control over the issuance of raw materials to production?
- The auditor would examine material requisitions and reperform client contols designed to process and record the issuances.
- Examine prenumbered materials requisitions for proper authorizations, quantities, descriptions, and dates
